India’s economic growth data for the second quarter of the 2022-23 or FY23

Key updates-

• India’s gross domestic product or GDP grew by 6.3 per cent in Q2 on a year-on-year basis. In other words, it was 6.3% more than the GDP in the same months in 2021. The second quarter or Q2 refers to the months of July, August and September.  
• MoSPI also reported that India’s Gross Value Added (or GVA) in Q2 grew by. 5.6 per cent on a year-on-year basis.

• The biggest news in GVA data is the contraction in the manufacturing sector. In Q2, manufacturing GVA declined by 4.3%.   
• The contraction has meant that manufacturing GVA has grown by just 6.3 per cent over the three years since the Covid pandemic; look at the change between FY23 and FY20 in the CHART.
• The fact is, as borne by the data, manufacturing GVA grew by just 10.6% between FY17 and FY20. 
• For perspective, it is important to remember that between FY14 and FY17, manufacturing GVA grew by 31.3%. 
• In other words, Indian manufacturing has been struggling to add value for the past six years. This would explain why data from the Centre for Monitoring Indian Economy (CMIE) shows that jobs in the manufacturing sector halved between 2016 and 2020.
• The other big story is the almost 15 per cent growth in services such as trade and hotels, etc. If one looks at the Q2FY23 level and compares it to the pre-Covid level (Q2 of FY20), the growth is barely over 2 per cent. That this sector grew by over 26 per cent in the three years between FY17 and FY20 — when India was experiencing a serious economic deceleration — shows how badly it has been affected by the Covid disruption.
• Another sector crucial for job creation, even though it is smaller in terms of overall contribution to India’s GVA, is mining and quarrying. It, too, has contracted by almost 3%. 
• Looking back over the past six years, it has contracted by 3.5% between FY17 and FY20 and grown by just 2.5% since then.
• One positive story emerging from the GVA pertains to agriculture (along with forestry and fishing), which has done better than expected by growing at 4.6%. 
• Typically, this is a good growth rate for this sector and has happened despite some worries that the sowing of crops did not happen in time.
• Overall, while the GVA has grown by 5.6 per cent year on year, the growth is just 7.6 per cent when compared to the pre-Covid level set in FY20.

What does GDP data show?

• On the GDP side, the biggest engine of growth is private consumption expenditure. It typically contributes over 55% of India’s total GDP. 
• This component is also crucial because if this is depressed, it robs businesses of any incentive to make fresh investments; and expenditures towards investments are the second biggest contributor to the GDP, accounting for around 33 per cent of the total.
• Data shows that private consumption has grown by a healthy 9.7 per cent over the past year. However, the growth is relatively modest  just 11 per cent when compared over the last three years. That between FY14 and FY17, this component grew by almost 28% provides some perspective.
• The investment expenditures have grown by 10.4% over FY21 and by almost 21% between FY20 and FY23. 
• This is the best growth over any three-year period going back to FY14. This suggests brighter prospects for the economy over the medium term.
• The biggest surprise though from the GDP is the contraction in government final consumption expenditures. 
• While these types of expenditures account for just about 10-11% of the GDP, they have the ability to prop up an economy during tough times when people and businesses hold back spending. 
• Oddly enough, data shows that not only did government consumption expenditure contract by 4.4% per cent in Q2 (over the Q2 of 2021), but that it is almost 20% below the pre-Covid level.
• The last component of the GDP equation is the Net Exports data. Typically, since India imports far more than it exports, the NX value is negative. 
• In Q2, this negative value swelled by 89 per cent. Over the past three years, this drag on GDP has also increased in size by almost 150 per cent.